Bonds In Conversation : Bonds Buying Time OR Bonds, Buying Time ?

What a week it has been ! … watching paint dry. US treasury bond prices are back to lower to Oct shut down levels and we have some fanciful reports out today suggesting we could revisit the 3% handle for 10 year yield. No consensus amongst the banks on what to make of the FOMC minutes last night although the BoE and BoJ were easier to guess.

No consensus on Bernanke’s speech either which was read as superficially dovish yet in depth some hints of Taper ahead.

China’s 3rd plenum announcements brought cheer and a rally but not good news with PBoC coming out to slam all the currency debasement efforts of the rest of the world and their resolve to weaken their currencies as it was reported this morning.

”     Nov. 21 (Bloomberg) — The People’s Bank of China said the
country does not benefit any more from increases in its foreign-
currency holdings, adding to signs policy makers will rein in
dollar purchases that limit the yuan’s appreciation.”

Expectations are now for a less harsh Taper but Taper nonetheless which bodes well for equities. Bernanke’s speech has effectively cast the curve into a steepening mode for 3 good reasons.

1. Economy’s improvement which warrants healthily higher yields.
2. Unwinding of  levered positions that were initiated after all the QE’s to maximise returns.
3. Fed has been buying the long ends and Tapering would end that even if the Fed kept short end rates low for another extended period of time.

That would appear to leave bond holders on dangerous ground especially with the record volumes of bonds issued this year. Yet why should we not enjoy the yield returns especially if funding rates will stay low for a long, long time ? [Note : The Federal Reserve (not China) is holding 32.72% of all outstanding 10 year equivalent notes and bonds]

So my question would be, is it Bond Buying Time ? Or Are Bonds Buying Time ?

I looked to an insurance portfolio manager for that answer. Insurance portfolio managers are perhaps the best people to answer such questions because their analysis are usually wired for the long term, unlike the shorter term trading mindsets of myself and my peers.

This portfolio manager friend of mine has been a bond bull for the past decade in a no brainer of a market, according to him. I suppose it is easy to show off when you are running an accrual book without the stress of accounting for losses.

His pressing concern is that we appear to be on the brink of bear period, be it next year or the year after. Smart money did not buy bonds this year as stocks (S&P 500) returned 25% vs 10Y treasuries at -8%. And smart money continues to issue bonds to put the money to other uses.

So his verdict – Bonds are buying time.

Singapore saw 2 new issues this week catering to 2 different market segments – retail and institutions. A Sembcorp 10.5 year senior benchmark and a 5 year Banyan Tree senior paper. Both saw the usual good demand and oversubscription which is all good.

Leaving you with the prices (all unverified).

USD Asian Bonds issued this year and listed in SGX or HK.


2013 SGD Bonds





2012 SGD Bonds